Magazine

Rolling Out The Instant Office

May 06, 2007

Working anywhere but work is causing a vast emptying out in corporate-land. About 60% of the office space that companies pay so dearly for is now a dead zone of darkened doorways and wasting cubes (see BusinessWeek.com, 3/11/07, "Telecommuting Now and Forever"). "Imagine if a factory had a utilization rate of 40%," says Mark Golan, vice-president for worldwide real estate and workplace resources at Cisco Systems Inc. (CSCO) That's why executives like Golan are increasingly using a new approach to deal with the fact that one of the largest long-term costs on the balance sheet is often an idling asset.

The age of on-demand projects is creating a need for on-demand offices. Just as executives in the '80s and '90s created flexible workforces by outsourcing jobs, today they are creating flexible workplaces by outsourcing offices. Quick shifts in global business currents mean that during one quarter your team might need to be in Minsk, the next in midtown Manhattan. Projects that were supposed to last a few months sometimes linger for years.

The idea of the office as a static thing is crumbling. But corporate real estate remains an old-fashioned affair of three- to five-year leases that come with heavy penalties for shrinking, expanding, or exiting space. Now companies like Google (GOOG), GlaxoSmithKline (GSK), Cisco, IBM (IBM), and professional staffing firm Spherion are outsourcing chunks of their corporate real estate portfolios to third-party outfits specializing in providing everything-you-need office space. That includes info-techdepartments, phone lines, sleek furnishings, receptionists who speak the local language, support staff, translators, concierges, and catering—for as little or as long as you need them.

Golan says technology is enabling companies to move more and more of their real estate portfolios anywhere. Not to mention that office outsourcers usually deliver superior services in backwaters. It's hard to justify rolling out the works for five workers in the middle of nowhere.

Think of it as the elastic office. The biggest player in this space is Britain's Regus Group PLC, where executives can order up offices in 950 locations in 400 cities around the globe, all with professionally swank addresses. More than 250 of the largest U.S. corporations have signed on to use Regus' instant offices. The publicly traded British company saw profits double last year—quite a turnaround for a company whose U.S. division filed for Chapter 11 protection in 2003, after the Internet bubble and commercial real estate collapse. Regus emerged in 2004 after renegotiating above-market leases and dumping excess space. Occupancy has increased, enabling Regus to generate more revenue per location.

TESTING THE WATERS

To ease tensions for weary nomads, Regus locations are outfitted uniformly so that the offices in Ho Chi Minh City, for example, look exactly like Regus' outposts sprinkled all over Manhattan. The Class A spaces come with reception areas befitting a modern boutique hotel and lounges loaded with televisions, snacks, and gourmet coffee. Leases can last for as little as a day to as long as tens of years. Because corporations pay for meeting rooms, videoconferencing technology, and support services on an as-needed basis, they typically save about 30% over a permanent office. "We take care of your facilities so you can take care of your business," says Guillermo Rotman, president of Regus Group Americas.

The model is a low-cost way to test new markets. Usually, getting a new office up and running—between approvals, construction, and accommodations—can take six months. When Ginny Forster, senior manager of corporate real estate at Spherion Corp. (SFN), needed to set up an office quickly in Milwaukee last year to see if there was enough demand for its business there, she picked up the phone and called her Regus rep. He had everything ready for her in two days.

Another draw: Regus enables companies to set up a local office, with phone number, mailing address, and native-speaking receptionist, without ever actually setting foot in country. Talk about post-geographic.